Level 3 shares surge on report of ‘advanced’ merger talks with CenturyLink

BROOMFIELD — Level 3 Communications Inc. (NYSE: LVLT) saw its stock price spike more than 10 percent in afternoon trading Thursday after a Wall Street Journal report that the Broomfield-based company is in “advanced talks to merge” with CenturyLink (NYSE: CTL).

The news comes after reports earlier this year that Level 3 could be seeking a merger or other strategic option such as a large stock buyback.

The Wall Street Journal report Thursday, citing anonymous sources, said a deal could be announced “in the coming weeks.”

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A Level 3 spokesperson declined to comment on the report.

Roger Entner, a telecommunications analyst at Massachusetts-based Recon Analytics LLC, said the merger of the two firms would help give them greater scale to better compete with the likes of AT&T and Verizon.

“They’ll be in more places with more services,” Entner said in a phone interview.

Level 3 provides a variety of communications services for business customers worldwide, including a large network of long-haul fiber-optic cable between cities, voice and data, Ethernet, content distribution, and data center and cloud services. Monroe, La.-based CenturyLink, which acquired Denver-based Qwest in 2011, is perhaps best-known for providing phone and internet service but also provides lots of business and data center services.

Entner said the Ethernet services market — essentially, providing internet connectivity to businesses — is the area where there’s the largest overlap between CenturyLink and Level 3. While he said AT&T is easily No. 1 in Ethernet services in terms of market share, he noted that Level 3 is No. 2 and CenturyLink No. 5.

“This would make them a lot stronger No. 2 player,” Entner said.

Level 3 shares closed at $51.87 Thursday, up from $46.92 the day before. CenturyLink shares closed at $31, up from $28.25. Those closing prices give the company market values of roughly $18.7 billion and $16.7 billion, respectively.

Given their similar market caps, Entner said the question then becomes who acquires whom, particularly because only one headquarters would likely survive.

Level 3 acquired rival TW Telecom for about $6 billion in late 2014, and kept its Broomfield headquarters. At the end of 2014, just a couple of months after that merger was complete, Level 3 employed 13,500 people according to its end-of-year financial report filed with the Securities and Exchange Commission. By the end of 2015, Level 3 had shed 1,000 employees and has reportedly cut more this year. It’s unclear how many people the company employs in Broomfield, though at the time of the TW Telecom acquisition, that figure stood at about 2,400.

CenturyLink, meanwhile, employed 42,800 people as of June 30 of this year, down about 1,600 from a year earlier.

Despite similar market caps, CenturyLink is about twice as big as Level 3 in terms of revenue. The company reported $17.9 billion in sales for 2015 and posted quarterly revenue of $4.4 billion in the second quarter of this year. Level 3’s 2015 sales came in at $8.2 billion, with second-quarter sales this year of $2.06 billion. Level 3 is slated to report third-quarter earnings next week.